Merchandising Activities

Chapter 6

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Operating Cycle of a Merchandising
Company

6-2
Comparing Merchandising Activities
with Manufacturing Activities
Manufacture
Purchase inventory and
inventory in have a longer
ready-to-sell and more
condition. complex
operating cycle.

Merchandising Manufacturing
Company Company
6-3
Income Statement of a Merchandising
Company
Computer City
Cost of
Condensed Income Statement goods sold
For the Year Ended December 31, 2015 represents
Revenue from sales $ 900,000 the expense
Less: Cost of goods sold 540,000 of goods
Gross profit $ 360,000
Less: Expenses 270,000
that are
Net income $ 90,000 sold to
customers.
Gross profit is a useful means of measuring
the profitability of sales transactions.
6-4
 Accounting System Requirements for
Merchandising Companies
Control Account General Ledger
Accounts Receivable
Date Debit Credit Balance
2015
Subsidiary Ledgers June 1 10,000 10,000
15 3,000 7,000

Subsidiary Ledger
Sparks, Inc.
Date Debit Credit Balance
2015
June 1 3,000 3,000
15 1,000 2,000
Subsidiary Ledger
Heather Jacobs Company
Date Debit Credit Balance
2015
June 1 7,000 7,000
15 2,000 5,000
6-5
Perpetual Inventory Systems
Purchased 10 Regent 21-inch computer
monitors on account from Okawa
Wholesale Co. The monitors cost $600
each, for a total of $6,000; payment is due
in 30 days.

6-6
Perpetual Inventory Systems
On September 7, Computer City sold 2
computer monitors for $1,000 per unit on
account to RJ Travel Agency.
Retail
22  $1,000
$1,000 == $2,000
$2,000

22  $600
$600 == $1,200
$1,200
Cost
6-7
Taking a Physical Inventory
In order to ensure the accuracy of their perpetual
records, most businesses take a complete physical
count of the merchandise on hand at least once a year.
Reasonable amounts of inventory shrinkage are viewed as a
normal cost of doing business.
Examples include breakage, spoilage and theft.

On December 31, Computer City counts its inventory.

An inventory shortage of $2,200 is discovered.

6-8
Closing Entries in a Perpetual
Inventory System
The closing
 Close Revenue accounts entries are the
(including Sales) to Income same!
Summary.

 Close Expense accounts

(including Cost of Goods
Sold) to Income Summary.

 Close Income Summary

account to Retained
Earnings.

 Close Dividends to Retained

Earnings.

6-9
Periodic Inventory System
On January 6, Wagner Office Supplies
purchased merchandise amounting to
$2,000 on account from Ink Jet Solutions.
Notice
Notice that
that no
no entry
entry is
is
made
made toto Inventory.
Inventory.

6-10
Computing Cost of Goods Sold
The
The accounting
accounting records
records of
of Wagner
Wagner
Office
Office Supplies
Supplies show
show the
the following:
following:
Inventory,
Inventory, Jan.
Jan. 11 $$ 14,000
14,000
Purchases
Purchases (during
(during year)
year) 130,000
130,000
Inventory,
Inventory, Dec.
Dec. 31
31 12,000
12,000
Inventory (beginning of the year) $ 14,000
Add: Purchases 130,000
Cost of goods available for sale 144,000
Less: Inventory (end of year) 12,000
Cost of goods sold $132,000
6-11
Selecting an Inventory System

6-12
Credit Terms and Cash Discounts
When manufacturers and wholesalers
sell their products on account, the
credit terms are stated in the invoice.
Read as: “Two ten, net thirty”

2/10, n/30
Percentage # of Days Otherwise, the # of Days when
of Discount Discount Is Full Amount Is Full Amount Is
Available Due Due
6-13
Recording Purchases at Net Cost
On November 3, Computer City purchases 100
spreadsheet programs for $100 each from
PC Products, credit terms 2/10, n/30.
Prepare the journal entry for Computer City.

$10,000  98%
$10,000 98% == $9,800
$9,800
6-14
Recording Purchases at Gross Invoice
Price
On November 3, Computer City purchased
$10,000 of merchandise on credit with
terms of 2/10, n/30 from PC Products.
Prepare the journal entry for Computer City.

6-15
End of Chapter 6

6-16